Gold Slips Sharply, Fed Induced Rally Being Sold Into Ahead Of Weekend

NEW DELHI-INDIA (Sept 21)  MCX Gold slumped today as the COMEX gold futures were hammered ahead of the weekend as traders took profits after the massive gains seen earlier in the week. Gold had witnessed its best session in last four years after the US Fed, surprising analysts who predicted a cut in asset purchases of $5 billion to $10 billion, warned that an increase in interest rates threatens to curb growth. However, steady US economic data and worries over Indian gold demand ensured that this rally does not sustain. COMEX Gold is quoting at $1350.70, down $18.60 per ounce on the day. MCX Gold is at Rs 30250, down Rs 294 or around 1% on the day. 

Economic data releases yesterday showed sales of previously owned U.S. homes unexpectedly rose in August to the highest level in more than six years, while jobless claims gained less than forecast last week. The Philadelphia Fed's manufacturing index jumped to a reading of 22.3 in September from 9.3 in August. That's the highest reading since March 2011.

In local markets, the RBI governor, Raghuram Rajan, delivering his first ever monetary policy statement, hiked the benchmark repo rate to 7.5%, acting against all odds. The RBI also reduced the MSF rate by 75 basis points to 9.5%. While reducing MSF, The central bank kept the Cash Reserve Ratio (CRR) unchanged. Rajan took over as governor on September 4. Local market sentiment improved dramatically after the Fed announcement and expectations are high that RBI will take measures to ensure the smoother flow of liquidity to make money supply available for productive purposes. The stocks tanked following this, with the SENSEX shedding nearly 600 points in intraday moves. Indian Rupee slipped and is currently down 0.80% on the day at 62.70 per US dollar. 

US dollar plummeted following the FOMC decision and tested a fresh eight months low against the Euro before witnessing some buying. If the dollar extends this rally, gold is likely to drop further in coming days. India's gold demand is also seen muted. The buying from the consumers in the biggest gold importing country is set to drop during the main festival season as the poor economic conditions hurt discretionary spending on gold jewelry, coins and bars in coming weeks when the festive season hits its peak.